Beginners need to know how spread betting works before investing their hard-earned money. This article will act as a spread betting tutorial by providing a detailed step-by-step guide to spread betting for beginners.
What Is Spread Betting?
According to Capital.com, “Spread betting is a tax-free derivative product that enables traders and investors to benefit from price fluctuations of underlying financial assets, including stocks, commodities, indices, and currency pairs.
A flexible form of trading, spread betting allows traders to speculate on bullish and bearish price movements (when the market goes up or goes down), taking long and short positions. It provides traders with double the amount of trading opportunities than the more traditional form of buy-and-hold.”
Unlike most buy-and-hold trading strategies, spread betting investors do not need to raise the total amount required to purchase the underlying assets. Instead, only a small margin is necessary; the brokerage institution lends the rest of the amount, a condition known as leverage.
Steps on How To Do Spread Betting
Like CFD trading, you will speculate on whether the underlying asset’s price will go up or fall and then place your bet accordingly.
Step 1: Opening a Live Account
A spread betting account is different from your CFD or other stock-broking accounts. These accounts differ in terms of the trading regulations, leverage requirements, and how gains are taxed. Spread betting accounts give speculators access to thousands of trading opportunities, including commodities, stocks, derivatives, and ETFs.
All you need to open a live spread betting account is an identity card or passport for verification and the minimum deposit requirement using your credit/debit card or money transfer services.
Step 2: Developing Your Trading Strategy
Many spread betting strategies exist, each with its own set of risks and potential rewards.
However, below are the top factors expert traders take into account when building trading plans.
- Risk tolerance – refers to your appetite for holding risky positions. Risk-averse traders have a low-risk tolerance, while risk-takers seek out positions with a high element of risk.
- Trading goals – refers to how much profit you intend to make in a day, week, or year.
- Target markets – refers to the asset categories you intend to specialize in.
- Fund availability – the use of leverage magnifies both gains and losses. It is advisable to only trade with amounts you can afford to lose.
Step 3: Opening a Position
After deciding on the target market and the direction you intend to take (whether to go long or short), the next step is opening a position. You decide on the amount you want to stake, then click on our trading interface’s buy or sell icons. Most importantly, remember to use risk management tools such as stop losses, alerts, and take profits to ensure you enter and exit the market at the best levels.
Speculative trading is rewarding, but it is equally risky. As with all trading strategies, practice makes perfect. As a beginner, you are better off refining your trading strategy in a demo account before moving on to a live account.